important point to understand about Factoring
is this: The advanced funding you receive for your receivables
and the discount fees you will pay are based soley on
the financial strength and credit worthiness of your
customers, not your business! Discount rates
will also vary depending on the total dollar amount you
intend to factor on a monthly basis (volume discounts
apply). Having said that, it is also important to understand
that specific rates or fees for factoring your businesses
receivables cannot be promised or quoted without knowing
anything about your customers, your business, or the invoice
amounts you wish to factor.
You will find that some factoring web sites are advertising
a seemingly low discount rate that is presumed to be the
rate any business will get if they factor with them. Understand
that this is a ploy and is only a baited hook to get you
on the phone! Once they have you on the phone and review
all of your receivables it is only then you will learn
the real factoring fees they intend to charge you!
we provide you with some examples of how the fees and
funding can work. If you are interested in receiving an
exact quote for factoring your invoices, please fill out
our very simple getting
started information form. A factoring specialist
will contact you for a free consultation to tailor a factoring
solution and fee structure that best fits your business.
The information is free and the quote is yours to accept
Fee Structure and Funding
When you send in an invoice to be Factored you will usually receive
between 70% and 90% funding of the invoice amount within 24 hours
after the invoice has been verified (depending on the invoice
amount and the business paying the invoice). This is your advanced
funding. Advanced funding is wired to your business bank account.
Discount Rate = Factoring Fee
The Factoring fee can range between 2.5% and 3.5% per 30 days,
or .1% per day the invoice is unpaid after factoring. Keep in
mind that factoring fees are tailored to the individual needs
of your business and customer base.
of Time for Payment
of the Advance minus the Factoring Fee
When your customer
pays the invoice you will receive the remainder of the advanced
funding, minus the Factoring fee (discount rate).
say you have a customer ABC Company that owes your business
$100,000 for a shipment of your widgets just delivered. ABC
Company is a large customer that has good credit but they never
pay their suppliers (you) any sooner than 45 days. Instead of
anxiously waiting 45 days to get your $100,000, this time you
decide to use Factoring to improve your cash flow. The Factoring
company verifies your invoice to ABC Company and you receive
80% of the $100,000 ($80,000) within 24 hours, wired to your
bank account. If you have a discount rate similar to the sample
shown above and ABC Company pays the $100,000 invoice in about
45 days, this equals a factoring fee of 4.5% of the original
$100,000 ($4500). Since you have already received an advance
of $80,000 from the factor, you will receive the remaining $20,000
minus the factoring fee of $4500 ($15500). Therefore, in the
end you collected $95500 of the original $100,000 invoice. However,
this time you did not have to wait the usual 45 days to get
your money. This time you received $80,000 up front in one day,
and collected the remaining $15500 in 45 days.
Cash Now! - No Waiting
are the costs of NOT Factoring?
Given the example
above consider the time value of money and the benefits of improved
cash flow to your business. By having cash for your invoices within
24 hours are you able to pay your suppliers faster and receive
better discounts? Are you able to fulfill your next order to XYZ
Company and make payroll without tapping your line of credit at
the bank? Can you offer longer terms to larger customers and attract
more business? Can improved cash flow help your business grow
or survive without incurring more debt at the bank? Can the financial
benefits of improved cash flow to your business offest the fees
of Factoring, and then some? In many cases factoring is a smart
is Factoring NOT a good fit for business?
- If your business is running on low margins (less than 10%),
factroing may not be right for you.
PLENTY OF CASH ON HAND - If you have a cash rich business
free of cash flow concerns, factoring does not make sense for